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State Name: New Jersey
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State Abbreviation: NJ
State Abbreviation Lower: nj

MND NewsWire features plain and simple interpretations of industry related data and events written in a manner that maintains the interest of random readers while still catering to the perspective of a housing market professional.

There are two small changes in the tax code this year that may benefit some
homeowners. If you think you qualify for these changes, research the guidelines
at www.irs.gov or contact your
tax advisor.

The first change is actually an extension. In late 2006 Congress passed a law
allowing a rather strange one-year deduction of premiums for private
mortgage insurance (PMI). This was a scrap thrown to PMI insurers who had
been complaining that their businesses were suffering from the number of homeowners
opting for piggyback mortgages. These simultaneous second mortgages were used
for a house down payment, eliminating the need for PMI and providing an additional
mortgage interest deduction.

This deduction required that the policy be taken out and paid for in 2006 (tough
luck for homeowners struggling with premiums from earlier years,) was for home
acquisition not refinancing, and the deduction was available for 2006 only.
Now this deduction has been extended for 2007 provided that
the PMI contract was entered into in 2006 or 2007 and that payments for the
more recent year were made before 2008. PMI premiums are treated as mortgage
interest on Schedule A so taxpayers must itemize in order to claim the deduction
and the taxpayer’s gross income must be under $50,000 for an individual
or $100,000 for a couple filing jointly. A portion of this deduction may be
available for higher earners; again, consult the regulations or your tax advisor.

Homeowners whose homes were foreclosed in the last year or
who gave a deed in lieu of foreclosure or had a short sale approved by their
lender have been granted a new benefit by Congress.

In the past, when taxpayers ended up paying less than the total amount due
on their mortgage, the lender was required to issue a form, similar to a 1099,
for a cancellation of indebtedness income. Thus, a debtor who had lost his home
might find himself facing taxes on thousands of dollars in forgiven debt if
the house failed to fully repay the mortgage at auction.

Under The Mortgage Forgiveness Debt Relief Act of 2007, up
to $2 million of the cancelled debt on a principal mortgage is now tax free.
The new law does not apply to investment property.

Comments

Is there a relief package or alternate package for investment properties. Anything on the horizon?

anonymous

on

Does the mortgage debt relief act of 2007 apply for homes that are being foreclosed on, or only for short sales and deed in lie of forclosure?

neil

on

Have been unable to obtain any clarification on this Mortgage Forgiveness Debt Relief Act of 2007. Is there some it applies for and some it does not? Have customer that lost primary residence in foreclosure due to non-payment in 2007. Forced out of home which was later sold by bank for $22,000 less than owed. Bank issued 1099A and when contacted by phone about relief act, says they won't amend the 1099A and customer must still pay taxes on $22,000 in forgiven debt. Gave no reason why debt should not be forgiven by the act. As the 1099A isn't corrected by bank, should customer just not report it on his taxes and wait and see what the IRS would do?

The H.R. 3648 Bill a.k.a. the Mortgage Forgiveness Debt Relief Act of 2007 will eliminate a taxable gain on borrowers who received a forgiveness of debt from a lender in a short sale.
Normally, if a lender forgives the debt, to this extent the homeowner would have a taxable gain. HR 3648 will eliminate this â€œphantom incomeâ€ on a borrowerâ€™s principal residence.
HR 3648 applies to all debt forgiven from Jan 1, 2007 and on and the same concept can apply to residential investment property when the lender is willing to accommodate that.
Sorting out who is eligible is daunting. Read:
http://www.whitehouse.gov/news/releases/2007/12/20071220-6.html
If in or nearing delinquency could seek real estate investor to mitigate potential damage. Experienced investors have been doing short sales for decades.

Tax Forclosures

on

I've heard that about 1% of properties in preforeclosure typically go into foreclosure. Does anybody have data showing what the actual percentages were for the LA area in say 1988, 1991,
1995 and 2000?

Martha S

on

The lender is going to issue a form 1099 in any case as part of their claim of a business loss. Homeowner does not need to declare this as cancellation of debt income but should have all documentation in hand in case the IRS questions the return. Such challenges are likely given that the IRS cannot necessarily tell from the lender's 1099 whether the property was a primary residence or whether consumer debt was bundled into the loan. If the house was refinanced to pay off other consumer debt, a portion of the cancelled debt may still be taxable. I recommend seeing a tax professional.
The law applies to foreclosures, short sales, and refinances under the Hope for Homeowners provisions of the Foreclosure Prevention Act of 2008.

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